Dewan Housing Finance Corporation Ltd said on Monday it will sell a stake in the company and some units to ease liquidity conditions, as it sought to ease investor concerns after claims of financial mismanagement that have hammered its shares.
The company aims to bring in a “strategic investor” on board within 90 days and also divest a stake in education finance arm Avanse Financial and its insurance business, chairman and managing director Kapil Wadhawan said on a conference call.
Wadhawan was speaking to investors and analysts to explain the measures being taken to cut debt and ease concerns related to a liquidity crunch, especially after media house Cobrapost last week alleged that Dewan Housing had diverted loans to shell companies.
The company denied the allegations. Still, the allegations led to a rout in its shares. Dewan Housing’s share price had halved in the six sessions from January 25 to February 1. On Monday, the shares gained 4.2% to close at Rs 116.10 apiece after the company unveiled its stake-sale plans.
Wadhawan, who also heads Wadhawan Global Capital Ltd, the group’s financial services holding company, said there are already active discussions about roping in strategic investors for Dewan Housing. The deal is likely to be finalised within 90 days, he said.
Dewan Housing has been under pressure since September after debt defaults by Infrastructure Leasing & Financial Services plunged the broader non-banking financial sector into a crisis. In September, DSP Mutual Fund sold some debentures on Dewan Housing, putting additional pressure on the non-bank lender. Dewan Housing’s loan disbursements in the October-December quarter plummeted 95% from a year earlier to Rs 510 crore.
Since then, Dewan Housing has sold some businesses and raised additional capital. On Saturday, for instance, Dewan Housing as well as Wadhawan Global sold their stake in Aadhar Housing Finance Ltd to private equity giant Blackstone. A few days ago, global alternative investment management firm Oaktree Capital Management LP invested Rs 1,375 crore to buy loans from Dewan Housing. And in December, Dewan Housing agreed to sell its stake in the mutual fund business DHFL Pramerica to its US joint venture partner Pramerica Financial.
Wadhawan said discussions within the group as well as with specific strategic partners have been going on. The group has also appointed bankers to find an Indian partner to sell its stake in the life insurance business, he said, without revealing the names of the bankers.
“Events since 21 September 2018 have accelerated the process of realigning the ownership and management to bring in a broad-based professional ownership to enhance stakeholders’ confidence,” Wadhawan said.
These steps are aimed at considerably reducing Dewan Housing’s debt. The company also plans to infuse fresh capital of around Rs 2,000 crore. The holding company will also cut its stake in some assets where it owns more than 50%.
“We anticipate that more than 90% of the debt will be pared,” Wadhawan said.
Dewan Housing's insurance unit is DHFL Pramerica Life Insurance Company, where its joint venture partner is US-based financial services firm Prudential Financial.
Dewan Housing holds a 51% stake in the insurance company and Prudential Financial the remaining 49%. While Wadhawan said the group was looking to sell its stake in the insurance venture, The Economic Times reported that it was not clear if Prudential Financial would also make an exit.
Prudential Financial told the financial daily that the latter and Dewan Housing are evaluating options for DHFL Pramerica Life Insurance, whose assets under management stood at Rs 4,310 crore as on 31 December 2018.
Separately, James Weakley, senior vice president for international businesses at Prudential Financial, said in a statement that, while Dewan Housing may reduce or exit its stake in the joint venture, the US company intends to continue to play an active role in India's life insurance industry.
“We remain focused on maintaining the strength of the [insurance] joint venture, on our long-term strategy for the Indian market, and on serving the needs of our customers and employees," he said.
Weakley also said that Prudential Financial will work together with Dewan Housing to find a new majority locally owned and controlled shareholder for the insurance venture.
*This article has been updated with comments from a Prudential Financial spokesman.